China's New Economic Model: Moving Away from Export Led Growth

Joseph Stiglitz, the Nobel laureate in economics (who was a professor at Stanford during my Stanford years) says in his new article "World has much to learn from China's new economic model" that China is employing a "new economic model" to move away from export-led growth that other East Asian countries have pursued. China recognizes that things that worked in other countries may not be suitable to China's unique situation.

To move away from export-led growth, China needs to stimulate domestic consumption. "While the rest of the world struggles to raise savings, China, with a savings rate in excess of 40 percent, struggles to get tis people to consume more." The good news is, as professor Stiglitz notes, "There is a consciousness of environmental limits and the realization that the resource-intensive consumption patterns now accepted in the United States would be a disaster for China - and for the world."

The new model also requires China to create an independent innovation system. "Western technological innovation has focused too little on reducing the adverse environmental impact of growth, and too much on saving labor - something that China has in abundance," says professor Stiglitz. So, it makes sense for China to focus on technologies that use fewer resources, but can be used by majority of people.

In the end, Stiglitz summarizes:

"Too many people think of economics as a zero-sum game, and that China's success is coming at the expense of the rest of the world. .... But economics is really a positive-sum game. An increasing prosperous China has not only expanded imports from other countries, but it also providing goods that have kept prices lower in the West, despite sharply higher oil prices in recent year.

[...]

We should all hope that China's new economic model succeeds. If it does, all of us will have much to gain."

Comments

[omooc:]

Excellent coverage. Where is Stiglitz's article published? omooc

2007 Apr 26 08:38 AM

[J Johnson:]

This sounds a lot like the worship for "new" Japanese ways of doing business trumpeted in the 1980's -- which amounted to nothing more frankly than a few local customs. Lifetime employment, taking the long view, high use of debt, turned out to be not all that they were cracked up to be. Japan was different, it was special, a recession in Japan meant 4% growth. Why? It was "different"!
China's economic model is nearly identical to that of the Asian Tigers, which copied it from Japan. Stimulate exports, depresss consumption, high savings rate, undervalued currency etc. Sure, there are some differences such as the starting position of a decripit financial system, but so far the strategy amounts primarily to harnessing foreign demand to pull yourself up. The importing countries benefit too via low priced goods, but this is not innovation.
Soon our bookstore shelves will be full of books by business gurus telling us about "the Chinese way". Argh.

2007 Apr 26 05:52 PM

[Jean-Paul R...:]

I totally agree with you.I was based in Tokyo 1986 to 1993 working for one of the top five investment banks. Government interference,and national hubris will eventually take its toll in China.Nikkei still nearly 60% below peak of 1990.

2007 Oct 14 04:38 PM

[Jean-Paul R...:]

I totally agree with you.I was based in Tokyo 1986 to 1993 working for one of the top five investment banks. Government interference,and national hubris will eventually take its toll in China.Nikkei still nearly 60% below peak of 1990.

2007 Oct 14 04:38 PM

[king Lee:]

I believe China is special .there is a cut out differentiation that China have comparatively to other Aisan economies of medium and smaller sizes.

The out put oriented strategy may work given the sheer size of China market,population and economic of scale,of which the richer Japan model have showed some inspiration .Having said that,Japan is not China as Japan is only 1/13 of China interm of pop,that is enough to make China different from Japanses model.

The present input oriented business/economy model is only transitionay,motivated by political necessity,to ensure that 1.3 billion have the mean to acquire basic living needs .Whether China model can evolve along the way forward ,breakaway from the labour and re-sources intensive model , to success of transforming China into a new economic and business model for the world understressed and under strained by the American model,is beyond economic constraints and inhibitions ;the pertinient question being asked is whether China can afford to adopt and turn history on its head ,to timely and rightly match its unique economy structure and system developed over the past almost 30 years into political realignment,of which is yet to happen.

The assertiveness of China as the next super power of the world is set in an benign enviornment so far,
the multifacets of political-economic-soc... challenges confronting China is not a purely Sino studies but growing global interest ,when global new economic and business model are evolving to take over the old and outdated model of purely market oriented and resources wastage/abandance .of which we can afford no more .

If China can afford to do that ,the way forward for
China is just an reassertion of the greatness of the past glory .after taking a break for 300 years !

The whole world is waiting for the new model of hope !
king Lee ,Malaysia

2007 Apr 29 02:42 AM